Feb. 28 (Bloomberg) -- Linn Energy LLC, the company that’s
increased output more than 20-fold in the six years since it
began public trading, agreed to pay $1.2 billion for BP Plc’s
natural-gas holdings in the Hugoton Basin in Kansas.

The transaction includes the equivalent of 110 million
cubic feet of gas production and proved reserves of 730 billion
cubic feet, Houston-based Linn said in a statement yesterday.
About 63 percent of the output is gas and the remainder is
natural-gas liquids, which can fetch higher prices.

Linn, which began trading in 2006, specializes in buying
older fields and profiting from production larger companies may
not find attractive, said Ethan Bellamy, an analyst with Robert
W. Baird & Co in Denver. The company’s output has risen to the
equivalent of 44,230 barrels of oil a day in 2010 from 2,210 in
2005, according to data compiled by Bloomberg.

The Hugoton purchase is “sort of contrarian” since gas
prices have fallen, said Bellamy, who rates Linn “outperform”
and doesn’t own it. “They’re in a position to do that, they can
basically look out five years” and wait for prices to increase
because they are hedged and Linn’s corporate structure offers
access to low-cost capital, he said.

Gas prices reached a 10-year low on the New York Mercantile
Exchange last month. Gas futures declined for a third
consecutive day to settle at $2.466 per million British thermal
units yesterday.

Limited Liability Company

BP, which expects production to be “broadly flat” this
year, plans to sell assets worth $38 billion by the end of next
year, the company said on Feb. 7. The asset sales come after the
London-based company claimed about $40 billion in costs
associated with its 2010 oil spill in the U.S. Gulf of Mexico.

Linn is a limited liability company, a structure that
allows it to pass its cash flow on to holders of its units and
avoid paying federal income tax.

The properties have estimated 2012 adjusted earnings before
interest, taxes, depreciation and amortization of $160 million,
Linn said. The transaction immediately adds to distributable
cash flow per unit, according to the company.

Linn has hedging agreements for the gas production it’s
acquiring through 2016. About 68 percent of the natural-gas
liquids output hedged, it said.

The purchase is expected to close by March 30, Linn said.
The company was advised on the transaction by RBC Richardson
Barr, Barclays Capital and BMO Capital Markets.